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USPS to discontinue obscure coupons that fueled original Ponzi scheme

Unless you happen to be an amateur radio hobbyist, (or a post office window clerk) you’ve probably never heard of International Reply Coupons. They’re little slips of paper sold by most post offices around the world, good for the price of one international airmail letter stamp. Due to declining demand for the coupons, the USPS will stop selling them as of January 27, 2013. Unexpired IRCs will continue to be accepted at post offices.

IRCs are popular among radio hobbyists who use the mail to send reception reports to distant, usually foreign, radio stations. Including an IRC with the reception report is considered polite, since the radio station can use it to pay the return postage on the confirmation, or QSL card. Because IRCs are accepted by any post office worldwide, the original sender doesn’t have to know the price of the actual stamp, or send money.

Individual postal administrations set the price for IRCs sold by their post offices. As a result, an IRC bought in a country with low postage rates may be worth considerably more than the purchase price in another country with higher rates. If one country sold an IRC for 25 cents, and another accepted the IRC in payment for a stamp worth 50 cents, a buyer could theoretically double his money.

In 1920, an Italian immigrant in Boston named Charles Ponzi thought he could take advantage of the price differential between Italian and American IRCs to make a profit. At the time, an IRC bought in Italy was worth four times the purchase price in the US. Ponzi sent money to relatives in Italy, who purchased IRCs and send them back to him.

Actually converting the IRCs into cash in any volume proved highly impractical. But that didn’t stop Ponzi from trying to use the idea to make money. Ponzi was able to convince some of his friends that he could double their money in 90 days using the IRC scheme. While Ponzi never actually used the money to buy Italian IRCs, he took in enough cash to pay some of the investors, which helped him attract more investors, most of whom reinvested their “profits”.

From there the scheme snowballed, as investors begged Ponzi to take their money, which he was more than happy to do. Like Bernie Madoff decades later, Ponzi used some of the money from new investors to pay “profits” to earlier investors.

The scheme collapsed after someone actually did the math, and calculated that Ponzi would have to have purchased 160 million IRCs to produce the profits he claimed. In reality, the Post Office Department could only confirm about 27,000 of the coupons were in circulation. The POD also reported that there had been no mass redemptions of IRCs.

Ponzi was arrested in August 1920, and eventually spent three and a half years in prison on federal mail fraud charges. He served an additional seven years on state charges before being deported to Italy. He later emigrated to Brazil where he died in a charity hospital in 1949, not knowing that his name would become synonymous with a type of fraud.